John McAuslin

A jovial and jokey Phillip Hammond sought to spread some early Christmas cheer yesterday as he delivered a Budget that he said would help the nation to be fit for the future. Innovation, enterprise and the digital economy were high on the agenda as the Chancellor outlined his vision for post Brexit Britain.

Claiming that Britain is at the forefront of a “technological revolution”, the Chancellor announced a package of measures to boost the sector including a further £2.3bn for investment in R&D and an increase in the R&D allowance from 11% to 12% as part of ambitions to raise the level of investment in R&D to 2.4% of GDP.

He also said there would be more support for STEM subjects. Promising “more maths for everyone,” he added: “Don’t let anyone say I don’t know how to show the nation a good time.” Boom boom.

The UK’s low corporation tax was maintained at 19% with the Chancellor noting that its reduction from 20% had generated an extra £20bn for public services. However, he said there was now a case for removing the corporate indexation allowance, which allows for the effects of inflation when calculating the chargeable gains of companies or organisations.

The relief, to be abolished on 1 January 2018, is among several measures intended to create a “fair and sustainable tax system” and will raise almost £1.8bn over the next six years. Anti-avoidance and evasion measures being introduced, which include charging income tax on royalties paid by UK companies to low tax jurisdictions from April 2019, could raise £4.8bn by 2022-23.

Despite widespread predictions that the VAT threshold would be reduced from the current figure of £85,000, it will remain for at least another two years; bringing relief to many small businesses. Change could still be on the way, though. Acknowledging that it is one of the highest thresholds in the OECD and noting the disincentive to breach it, the Chancellor promised a review.

Notably, there was also no raid on pensions, to pay for the Chancellor’s giveaways. Instead, he will use his “headroom” in public finances to target spending plans.

Scotland was awarded £2bn in the Budget through the Barnett formula. How the country chooses to spend it will be confirmed next month when we will also find out if there is to be any further divergence in income tax. With the Chancellor announcing that the UK personal allowance and higher income tax rates are to move to £11,850 and £46,350 respectively, Scottish higher rate tax payers could be £670 a year worse off if the current threshold remains at £43,000 (£412 if the threshold is raised, as expected, by the rate of inflation).

On a positive note, there was good news for Scotland’s oil and gas sector with the Chancellor pledging to introduce transferable tax history in a move designed to encourage new businesses to invest in mature fields. It was also confirmed that Police Scotland and the Scottish Fire and Rescue Service will be entitled to VAT reclaims from 1 April 2018 – but some campaigners will be disappointed that the benefit is not to be backdated.

The big reveal came when he announced that stamp duty is to be abolished for first time buyers purchasing properties of under £300,000 and on the first £300,000 for properties up to £500,000. While stamp duty does not apply in Scotland where it has been replaced by the Land and Buildings Transaction Tax, the move could put pressure on Scottish ministers to consider a similar boost for first time buyers.

Average house prices may be lower in Scotland than in the overheated south-east market but LBTT can still make it challenging for young people to get a foot on the property ladder, especially when they also must save a significant sum towards a deposit.

Last but not least, the Scotch whisky industry and our burgeoning craft brewers will be relieved to note that there will be no increase in duty in 2019. As the Chancellor quipped: “Merry Christmas, Mr Deputy Speaker.” Sometimes no change is the best change of all.

John McAuslin is a tax partner at Johnston Carmichael.